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Readers Speak Out Against ‘Mortgage Meltdown’ Commentary

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Last week’s column from Ralph Roberts rubs some readers the wrong way

RISMEDIA, Oct. 22, 2007-On Thursday, October 18, RISMedia ran a commentary from Ralph Roberts, “Mortgage Meltdown Quiz,” in which Roberts pointed the finger at mortgage brokers for current mortgage industry woes. Roberts’ opinions incited several readers to respond in detail.

Here, we present key excerpts from their rebuttals:

“I take exception to the article you printed by Ralph Roberts entitled a ‘Mortgage Meltdown Quiz.’ It boggles my mind anytime someone in the field of real estate presents themselves as an expert in mortgage banking. At best, you can be a jack of all trades.

On the contrary, I have been in the mortgage banking industry for over 20 years. I am a Certified Mortgage Specialist and card-carrying member of the local and national association of mortgage brokers.

Although there are rotten apples in every profession, including real estate, Roberts’ article appears to lump mortgage brokers into one distinct category, known in the business as ‘correspondent lenders.’ The opposite is true. Most mortgage brokers do not pool mortgages and sell to investors at a premium. At best, we are small businesspeople who may, on occasion, tablefund loans in our own names. What that means is that the loan is underwritten to a particular lender’s guidelines (by the lender’s own underwriters). The loan is approved by the lender and then funded in the broker’s name at closing. The loan is then immediately assigned to the lender.

The average broker, on the other hand, will close in the lender’s name and not their own. My firm always closes in the lender’s name. There is no profit or mark-up in the transaction. I have often waived YSP and collected my fees on the front end in order to make the loan affordable for the borrower. It is the LENDER’s Account Executives who often encourage YSP on products that their employers design and market to the public through brokers! That is the primary tool that they use to lure brokers into doing business with them. A prime example is the Pay Option ARM. AEs would push the two-point YSP to brokers who would in turn, push the product to borrowers.

Correspondent lenders are the only entities who are authorized to close and fund in their own name. Then they package and sell their inventory anytime post closing and collect a Servicing Release Premium (SRP) from the lender. This is additional income for them. There is nothing illegal or unethical about it. FNMA, FHLMC and HUD have been purchasing loans from Correspondent Lenders and Lenders under the SRP model since their inception.

We all have to feed our families under the American capitalist system.

Although Roberts’ article blames the current meltdown on brokers, every example he gave was either a Correspondent Lender or Wholesaler. Sure there will be fraud in any industry when money is the motivator-as much can be said for the real estate industry. Most brokers and sales agents are in the game for their commission. Not all of them belong to NAR or uphold their ethics.

My point is that the broker is a tool of the lender. We market their products. We produce none of our own. How lenders motivate us to do so can encourage certain behaviors. More importantly is that professionals place their customer’s best interests ahead of their own. I have done that for years and have challenged the financial benefit to my borrowers of certain mortgage products that lenders have put out there for the ethical among us to sell.

Some mortgages are just not good regardless of the incentives lenders offer brokers to convince consumers to sign on the dotted line. I would encourage Roberts to do his homework and look at the mortgage products that are currently in default. Not one was designed by a mortgage broker.”

Debra R. Napier CRMS
Sr. Finance Consultant
Kissimmee, FL

“I must tell you how disappointed I am with the article written by Ralph. ‘Simplistic’ and ‘fundamentally wrong’ are two words I would use to describe it. Again, it reminds me that we will never have an industry that is not prone to the big swings in guidelines as long as we keep looking for scapegoats to blame, as opposed to the serious lack of ethics and oversight the major lenders exhibit in their dissemination of mortgage products. Lenders generally push the products that make the most profits, and that is an industry issue as opposed to a sales issue associated with one segment of the industry. Wholesale lenders have been traipsing through my office for years pushing and promoting the big yield spread premiums (rebates) for the less consumer friendly products on their menu. At some point the heroin dealers need to be blamed for the drug problems as opposed to the users of the drugs only, wouldn’t your think?

I could go on and on as I am a 25- year veteran of the industry and have founded the San Diego Association of Mortgage Brokers with a few of my associates in the late ‘80s. I must say I get so tired of reading articles like this one that skews information enough to make it titillating but fundamentally incorrect.”

Craig S. Brown
Rancho Financial

“Actually, Roberts is ‘mis-stating’ the facts regarding mortgage brokers and misleading his readers, adding to the misinformation problem. Mortgage broker’s do not sell loans after they are originated, mortgage bankers do. Mortgage brokers only originate loans for a wholesale lender or investment source, and yes, they do get paid a percentage for their efforts, but the implied ‘incentive’ to originate and then sell the loan for additional profit does not apply to brokers, only to bankers. Yes brokers do originate the bulk of home loans, so to imply that they are driven or motivated by ‘double-ended’ profits is an unfair representation of the broker. Please be accurate when ‘throwing stones’.”

Bruce Wren
Legacy Home and Loan Center Inc.

“I have been a Mortgage Originator, now broker, for nine years. Never before have I felt compelled to comment on an industry article until reading your article by Ralph Roberts. I am amazed at how wrong he’s got it.

Let’s start with the following quote from his article:

‘When someone borrows $300,000 to purchase a home, for example, the broker receives two points at closing for a total of $6,000. They then package the loan with other loans and sell it to the market at 104% or $312,000. In this case, the originator just ‘earned’ $18,000 off the mortgage loan-the $6,000 commission plus the $12,000 markup.’

For the sake of an apples to apples comparison, let’s assume the broker did make two points at closing. Some will charge that, some won’t. Some of us work for a lot less. But when it comes to ‘packaging the loan and selling to the market,’ the Wholesale Lender who underwrote and closed the loan is making that profit, not the broker. If that were the case, I would be retired by now.

Next quote I take issue with:

‘When bad loans are traced back to mortgage fraud, misrepresentations, and misdeeds, originators takes a double hit. They are forced to buy back the bad loans, and the lender cuts off access to future transactions. With huge chunks of money flowing out and little or no money flowing in, the mortgage originator is forced to close up shop. That is what is currently happening and why we are now seeing a mortgage meltdown.’

Yes, originators who purposely write bad loans do have to buy them back and it can put them out of business. But to say that that is the reason for the meltdown – the buying back of bad loans to originators – sounds like someone needed to do some more homework before writing an article or a book. Is mortgage fraud a problem? You bet. Are there a lot of bad Originators that need to and are getting out of the business? You Bet. Are there brokers like me out there doing business the right way? You Bet!

Where I take issue is when everyone wants to put all the blame on the big bad broker. Everyone and anyone who has been involved in real estate transactions, from Wall Street down to the consumer (borrower), need to take ownership and responsibility for the problem. Enough with the blame game.

It sounds like Mr. Roberts needs to do a lot more research about the lending side of things. NAMB would be a great place to start.

Jennifer Eldred
Integrity Home Loans II
Medford, Oregon

To read “Mortgage Market Quiz” by Ralph Roberts, click here.

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